Continuation of the previous lesson on Demand: In-class activity: Use the linear demand function for cappuccinos, Qd = 500 – 25P to answer the questions that follow:
Create a demand schedule for cappuccinos with the prices of $0, $1, $3, $5, $7 and $9
Create a demand curve for cappuccinos, plotting the points from your demand schedule.
Assume the price of latte machiatos, a close substitute for cappuccinos, decreases, and causes the a variable in the demand function to fall to 300. Create a new demand schedule, with the adjusted values for Qd.
On your previous diagram, illustrate the new demand curve.
Assume that due to falling incomes, cappuccino consumers become more sensitive to changes in the price of cappuccinos, and the b variable in the original demand function increases to 40. Using the same prices, create a new demand schedule.
On the same graph as your original demand curve, illustrate the new demand for cappuccinos following the decline in consumers’ incomes.
Free-response/problem: You will work cooperatively with your partner to construct a response to the following prompt.
A survey shows an increase in drug use by young people. In the ensuing debate, two hypotheses are proposed: Reduced police efforts have increased the availability of drugs on the street. Cutbacks in education efforts have decreased awareness of the dangers of drug addiction.
Explain how reduced police efforts would increase the quantity of drugs consumed by youth, using what you know about the concepts of supply and demand.
Explain how the cutbacks in education would lead to an increase in the quantity of drugs consumed by youth, using what you know about the concepts of supply and demand.
Bonus: How could information on what has happened to the price of drugs help us to distinguish between these explanations?
Assessments and Activities: Free-response problem and lecture
Free-response/problem: You will work cooperatively with your partner to construct a response to the following prompt.
Assume that the market for cigarettes is composed of two groups: those who have never smoked and are not addicted and those who have smoked and are addicted. Now assume that the the government permanently raises the price of cigarettes.
Draw a diagram illustrating the effect of the increase in price in the market for addicted smokers.
Draw another diagram illustrating the effect of the increase in price in the market for non-smokers.
Explain why the outcome in each market is different.
Review attached before answering the questions
6 - Total Revenue Test, Income and Cross-elasticity and elasticity of supply.pdf
Assessments and Activities: Free-response/problem and lecture
Free-response/problem: You will work cooperatively with your partner to construct a response to the following prompt.
Several years ago, flooding along the Missouri and the Mississippi Rivers destroyed thousands of acres of wheat.
Farmers whose crops were destroyed by the floods were much worse off, but farmers whose crops were not destroyed benefited from the floods. Explain why.
What information would you need about the market for wheat to assess whether the total revenue of farmers increased or decreased as a result of this event?
Lecture: Consumer surplus, producer surplus, total surplus, and the efficiency of markets (PDF below)
Homework: You will work cooperatively with your partner to construct a response to the following prompt.
Suppose a technological advance reduces the cost of making computers.
Draw a supply and demand graph to show what happens to price, quantity, consumer surplus and producer surplus in the market for computers. Explain how the invisible hand moves the market to its most efficient outcome and why this is socially optimal.
Computers and adding machines are substitutes. Use a supply and demand diagram to show what happens to price, quantity, consumer surplus and producer surplus in the market for adding machines. Should adding machine producers be happy or sad about the technological advance in computers.
Computers and software are complements. Use a supply and demand diagram to show what happens to price, quantity, consumer surplus and producer surplus in the market for adding machines. Should software producers be happy or sad about the technological advance in computers.
SL: SL students are only required to know the INDIRECT TAXES, SUBSIDY AND PRICE CONTROL. however they are not required to know any of the calculations involved. Also they are not required to know market outcomes and social welfare associated with indirect taxes and subsidy.
Revison Guide
Powerpoints
Demand (Syllabus Section 1.1)
lecture notes:
Continuation of the previous lesson on Demand:
In-class activity: Use the linear demand function for cappuccinos, Qd = 500 – 25P to answer the questions that follow:
Supply (Syllabus Section 1.1)
Equilibrium - the interaction of supply and demand (Syllabus Section 1.1)
Quiz Revision on Supply, Demand and Elasticity
section 1.1 quiz
Elasticities (Syllabus Section 1.2)
October 16:
Elasticities Continued...
October 18:
October 22: The total-revenue test and other elasticities (Syllabus Section 1.2)
NOV 5 : Consumers, producers and the efficiency of markets (Syllabus Section 1.2)
Homework Due: Read Mankiw (Chapter 7) and watch the following videos.
Nov 7&13 : Price controls, taxes and subsides on equilibrium and economic efficiency (Syllabus Section 1.2)
Nov : Markets and Elasticities Math
November 18: Quiz revision on 1.4
SL: SL students are only required to know the INDIRECT TAXES, SUBSIDY AND PRICE CONTROL. however they are not required to know any of the calculations involved. Also they are not required to know market outcomes and social welfare associated with indirect taxes and subsidy.
|| File:Maximum taxation with perfectly inelastic supply.svg ||